Too Many Money Managers Have Your Interest At Heart

October 1, 1985|By Dick Marlowe of the Sentinel Staff

In an era of high interest rates, the game of playing fast-and-loose with someone else's money is becoming one of America's favorite sports. The popularity of the game is aided dramatically by the rules. There are no rules. And because there are no rules, there are few, if any, penalties for infractions.

The game gets torrid when interest rates rise. With money, possession is not only nine-tenths of the law -- it is also double-digit yield. Unfortunately, possession of someone else's money for the purpose of profiteering is not often treated as a criminal offense.

Some companies, I am told, have a standard practice of not paying creditors until they receive a second or third threat of a lawsuit. In that way, the unscrupulous businesses can hold onto the money that rightfully belongs to someone else for a little longer and rack up a few more dollars in profit on the interest received.

Unless you are an extraordinary person, there is a good chance that, somewhere along the way, interest that should have rightfully gone to you has been intercepted so that it wound up paying dividends -- at least for a few days -- to someone else.

It is obvious that institutions with thousands of clients can do very well for themselves over the course of a year by floating a few bucks their own way. Or by paying clients one rate, investing at a higher yield and making money on the spread.

It is one of the great financial oddities of our time. Banks that can steer entire corporate payrolls into their own hands with the pressing of an electronic button can't seem to find a way to provide the same service in reverse for clients. Turn over funds to a bank and it begins to earn top interest instantaneously -- for the bank. When a bank holds a check for ''clearing'' purposes, however, you soon learn that telecommunications and electronic banking are a myth -- the Pony Express rides again.

Now comes the disturbing news that some of the nation's largest banks are mishandling the funds of trust and estate clients. The acting comptroller of the currency, Joe Selby, last week warned about 100 big banks to get their act together and start handling their clients' money with the same alacrity they use in investing their own funds.

The banks, it seems, were parking some clients' funds into 5.5 percent passbook accounts rather than in higher-yielding money market accounts. While only large banks that manage trust assets up to $1 billion were singled out, the question naturally arises about the thousands of smaller banks that also have trust departments.

One bank regulator who didn't want to be identified was quoted in The New York Times last week as saying, ''We're not accusing them (banks) of a nefarious motive. We think the banks were just lazy.'' Whether banks are nefarious or lazy, the results are the same for customers whose accounts are not realizing maximum yields -- loss of income.

John Milstead, president of the Florida Bankers Association, doesn't know whether any Florida banks are among those who have received warning letters from the comptroller of the currency. Ever since money market rates became available to everyone as a result of deregulation, however, the FBA has been holding conferences to teach bank trust departments how to comply with the comptroller's requirements.

Milstead notes, however, that is it a tough proposition for all trust departments to get maximun yield for customers who may need ready cash on any given day. It is ''nearly impossible,'' Milstead said, to put money that has to be readily accessible into high-yielding investments.

That is true, of course. But the comptroller of the currency isn't talking about that. The warning is intended for those that know exactly what they are doing -- and why they are doing it.